Policy References:

GASB Statement No. 33 – Accounting and Financial Reporting for Non-Exchange Transactions (GASB Codification Section N50 – Non-Exchange Transactions)

Process and Document Preparation:

Tax revenues are classified as a derived tax revenue transaction. Derived tax revenues result from the taxes imposed by the State on exchange transactions. An exchange transaction resulting in derived tax revenues includes personal income taxes and certain consumption and use taxes and fees, business taxes, and other taxes. The following points characterize these transactions:

• The State imposes the tax on the person or entity that acquires the income, goods or services
• The State taxes the exchange transaction, such as the exchange of an employee’s services for a wage or salary or the exchange of an individual’s resources (money) for goods or services

Assets from derived tax revenue transactions should be recognized in the period when the taxable exchange transaction occurs or when the resources are received, whichever occurs first. Revenues, net of refunds and uncollectible amounts, should be recognized in the same period that the underlying exchange transaction has occurred. Resources received before the period during which the exchange is to occur should be reported in the liability section of the balance sheet as unearned revenues. Under the modified accrual basis of accounting, revenues from derived tax revenue transactions will be recognized in the accounting period when they become measurable and available. Full accrual accounting requires that revenues from derived tax revenue transactions be recognized in the accounting period when earned without regard to availability.

Accounting policy specifying the recognition of tax revenues is promulgated by the Office of the State Comptroller however, the State Department of Taxation and Finance (Tax and Finance) is responsible for determining tax revenue accruals. Functions in this capacity include administration of the State's tax laws and collection of State levied taxes.

PERSONAL INCOME TAXES

The major components comprising personal income tax (PIT) are described below:

• Employee Withholding Payments - Monies withheld from employees by employers and remitted to Tax and Finance. These monies are accounted for as current (relating to the current calendar year) or prior (relating to all calendar years preceding the current one).
• Estimated Payments - Monies remitted by self-employed individuals and individuals not having sufficient withholdings to meet their tax liability. These taxes are classified in the same manner as withholding taxes.
• Collections - Monies remitted by individuals when filing personal income tax returns. These monies are coded upon receipt as either current or prior.
• Assessments - Monies remitted by individuals after they have been billed for additional taxes. The billings are prepared after an individual's tax return has been audited. These receipts are coded as either current or prior.
• Refunds - These are overpayments of personal income taxes and must be repaid to the taxpayer by the State.

The State earns PIT revenues when taxpayers are paid for work performed or services rendered. The State receives these tax revenues in one or more of the methods listed below:

1. Estimated payments
2. Withholding payments
3. Payments with final returns
4. Assessment payments

Fiscal year end (March 31) accruals are generally measured by Tax and Finance based on collection activity and historical experience. PIT revenue accruals at March 31 are comprised of estimated PIT payments; withholding tax payments; an estimate of receipts on final returns; final payments (current returns); receipts applicable to prior tax years, and assessments receivable and related interest and penalties. PIT revenues accrued by tax payments/receipts represent collections during a specified time period subsequent to the report date. Estimated final payments (withholdings) accrue tax revenues earned during the first calendar quarter, but not received until final returns are filed during the subsequent calendar year. Assessments receivable and related interest and penalties are recorded based on an assessments receivable system developed by Tax and Finance.

Refund liabilities exist to the extent that estimated and withholding payments will exceed a taxpayers’ final tax liability. This accrual is measured on the basis of payment activity and historical experience. There is no refund liability attributed to first quarter estimated payments.

Refund liability accrued at March 31 will be comprised of refunds related to first quarter withholding payments, an estimate of current year (final returns) cash refunds, prior tax year refunds and offsets. The refund liability related to first quarter withholding payments represents withholding overpayments by taxpayers to be refunded upon filing a final return at some time during the subsequent calendar year. The remaining refund components simply represent unpaid refund claims at March 31.

BUSINESS TAXES

Generally, the State earns business tax revenues as corporations generate income. However, there are alternate methods of computing corporate tax liability as well as minimum corporate tax payments. As a result of the complexities involved in measuring business tax revenues, estimates are not utilized.

Business tax collections are described below:

• Estimated Taxes - Monies remitted quarterly on an estimated basis, by entities subject to tax. These payments are usually based on estimated annual liability, and accordingly, are generally not related to actual taxable income of the particular quarter in which they are made.
• Collections - Monies remitted as part of the annual tax return process where estimated tax payments during the year were not sufficient to meet the tax liability of the entity. Due dates will vary depending on the fiscal year of the corporate taxpayer. For a calendar year taxpayer, total calendar year tax liability must be paid by March 15 following the calendar year.
• Assessments - Monies remitted following a billing for additional taxes. Such billings are primarily the result of the audit process.
• Refunds - Overpayments of taxes by corporate taxpayers that must be repaid to the taxpayer.

The principal source of business tax revenue accruals are payments for estimated taxes that are recorded in the accounting period to which the payment relates. Where taxpayer and State quarterly periods overlap, estimated payments will be ratably allocated. Estimated taxes will be recorded to the extent they are received by the State within the prescribed cut-off period for annual reporting.

Collections remitted when returns are filed will be accounted for in the period to which the tax return relates. Revenues will be accrued on an actual basis for returns processed subsequent to the report date but within the prescribed cut-off period for processing. Estimates of amounts to be received subsequent to the year-end processing cut-off will be made and recorded as of the report date.

Assessment accruals are determined by using information obtained from the assessments receivable system developed by Tax and Finance.

Refund liability relative to business taxes result if a corporate taxpayer overpays current estimated tax payments or if a corporate taxpayer elects to carry back a net operating loss. Therefore, due to the uncertainty associated with measuring corporate tax refund liability, actual refund payments as well as an estimate (based on historical analysis) of refunds relating to the reporting period will comprise refund liability components. Refunds will be recorded to the extent they are actually made within the appropriate cut-off periods. In addition, at year-end, an additional liability will be recorded based on an estimate of refunds to be made relating to the reporting period.

Business taxes are categorized as follows:

• Corporation Franchise Tax
• Corporation and Utilities Tax
• Bank Tax
• Insurance Tax
• Pass-Through Entity Tax
• Petroleum Business Taxes

The pass-through entity tax (PTET) is an optional tax that partnerships/S corporations may annually elect to pay on certain income. If an entity elects to pay PTET, its individual partners/shareholders may be eligible for a PTET credit on their State PIT returns. The revenue is initially recorded as a business tax and reclassed as PIT. The PTET credit results in a PIT refund liability for the State.

SALES TAXES

Since sales tax revenues are earned by the State at the point of sale, these revenues will be accounted for in the period the sale was made. This will be accomplished by accruing sales tax returns received after period end but within the prescribed cut-off period that relate to the quarter or year being reported on.

For year-end reporting, the following additional accruals will be recorded based on estimates:

• Sales taxes due through March 31 for quarterly and annual filers
• Refund liability arising from sales tax remittances

It is anticipated that these amounts, in the aggregate, will not be material to total sales tax revenues.

OTHER CONSUMPTION AND USE TAXES AND FEES AND OTHER TAXES

All other consumption and use taxes and fees and other taxes will be recorded based on revenue data processed during the respective period or within a cut-off period prescribed by Tax and Finance in accordance with reporting objectives and GASB Statement 33. While it is anticipated that this will result in the recording of all material revenues in the appropriate period, significant amounts not recorded during those periods, which are estimable, will be accrued.

Other consumption and use taxes and fees (excluding sales taxes) are listed below:

• Alcoholic Beverage Taxes
• Alcoholic Beverage Control License Fees
• Cigarette and Tobacco Taxes
• Congestion Surcharge Fees
• Highway Use Tax
• Metropolitan Commuter Transportation Taxicab Ride Tax
• Motor Fuel Tax
• Motor Vehicle Fees
• Peer-to-Peer Car Sharing Tax
• Medical Marihuana Tax
• Opioid Excise Tax
• Auto Rental Tax
• Hotel/Motel Tax
• Beverage Container Tax

Other taxes include:

• Estate and Gift Taxes
• Metropolitan Commuter Transportation Mobility Tax
• Pari-Mutuel Taxes
• Real Estate Transfer Tax
• Real Property Gains Tax
• Racing and Combative Sports Taxes

Guide to Financial Operations

REV. 12/26/2023